A federal judge has denied the Consumer Financial Protection Bureau's proposed $19.1 million-plus settlement with 15 Delaware student loan trusts, holding that the trust agreements didn't allow a law firm to sign off on the judgment's execution.

In a decision filed May 31 and unsealed June 3, U.S. District Judge Maryellen Noreika of the District of Delaware wrote that in order for the settlement to go forward, it would instead have to be approved directly by owner trustee, Wilmington Trust Co.

As part of an investigation of alleged unfair loan practices and an audit of 800,000 student loans, the CFPB first brought action against the trusts, collectively known as the National Collegiate Student Loan Trusts, on Sept. 18, 2017. The bureau moved for approval of a proposed consent judgment the same day.

Seven intervening parties opposed the proposed consent judgment, which would, if approved, have required the trusts to pay a minimum of $19.1 million in penalties and refunds.

The judgment was approved by McCarter & English, a law firm representing the trusts. The case was bifurcated, and the CFPB and interveners briefed the court on two threshold issues: whether McCarter & English had the authority to sign the proposed consent judgment on the trusts' behalf and whether it was improper, authority notwithstanding, for counsel to enter into the proposed consent judgment.

According to the decision, the trusts' owners had originally directed Wilmington Trust Co. to authorize the settlement, but the company resisted doing so.

Citing a section of the Delaware Statutory Trust Act that states a trust can only be under the direction of its trustees, unless otherwise specified in an agreement, Noreika determined that while the owners' consent is required to settle claims against the trusts, the owner trustee is the only entity, based on the existing trust-related agreements in the case, that would be authorized to approve a settlement, and the Wilmington Trust Co. had not delegated its power to the owners or McCarter & English.

Additionally, Noreika found McCarter didn't have authority to execute the proposed consent judgment due to not having approval from one intervener. The trust agreement for the Collegiate Master Student Loan Trust I, known as the Master Trust, differed from the agreements with the other 14 trusts involved in that, in order for a settlement agreement to be executed, written approval from its note insurer, Ambac Assurance Corp., was required in addition to owner approval.

The court's decision did not address the other arguments raised on the threshold issues.

McCarter & English's Wilmington office and CFPB's media office did not respond to requests for comment on the case.